Office of the Attorney General
Attorney General Conway Announces $105 Million in Tobacco Settlement Money
Attorney General Jack Conway announced today that Kentucky, as required under the 1998 Master Settlement Agreement (MSA) between the major tobacco manufacturers and 52 states and territories, received its annual payment of $105 million in tobacco settlement money this week.
"My office continues to enforce the MSA, ensuring that Kentucky receives the money it’s owed from the agreement. The MSA provides funding for many invaluable programs – from agriculture to education," General Conway said.
Under the MSA, the tobacco companies agreed to make annual payments in perpetuity to the settling states, to fund a national foundation dedicated to significantly reducing the use of tobacco products by youth and to abide by certain restrictions on promotional and lobbying activity. Kentucky’s share of the settlement will be approximately $3 billion over the first 25 years. Payments are determined according to a formula that is calculated, in part, by the number of cigarettes sold by companies that have agreed to join the settlement.
The total received by Kentucky since the initial MSA payment in 1999 is nearly $1.3 billion for "Phase I." An additional $600 million was received by Kentucky tobacco growers under "Phase II," the Tobacco Growers Trust Agreement, which was created as a result of an MSA provision to address affected tobacco-growing communities in 14 states. Those payments ended with the federal tobacco buyout legislation in 2005.
Most of the MSA payment was paid by the three largest cigarette manufacturers - Philip Morris, RJ Reynolds, and Lorillard. Philip Morris made its payment in full, but RJ Reynolds and Lorillard withheld or put into a disputed account more than $500 million from their payments based upon their claims that they are entitled to reduced payments because of a provision in the MSA called the Non-Participating Manufacturer ("NPM") Adjustment. If a state diligently enforces the escrow statute, however, it is not subject to this reduction in payment. The Office of the Attorney General is continuing to pursue a judgment that Kentucky properly enforced this law and therefore should receive its full share of the disputed amounts.
This year marks the 12-year anniversary of the landmark MSA. Cigarette sales nationally are down at least 25% since the agreement went into effect and the public health provisions of the MSA that restrict cigarette advertising and promotion have changed the way cigarettes are marketed in the United States. The number of cigarettes sold in the United States in 2009 was the lowest since 1951, even though the U.S. population has doubled and per capita cigarette consumption in the United States is at its lowest level since the 1930s. This decline will have significant long-term effects on the healthcare costs related to smoking in the future.
Although a portion of the payment was withheld, Participating Manufacturers still paid the states that are signatories to the agreement more than $5.6 billion this week, bringing the total payments made under the MSA thus far to all settling states to more than $74 billion.